Key Takeaways
- Philip Morris International raised its quarterly dividend 8.8% in September, yet British American Tobacco’s 5.6% yield is still well above Philip Morris’s 3.2%.
- Philip Morris paid out 68% of its free cash flow as dividends over the twelve months to Sept. 30, 2026, against 78% for British American Tobacco over the twelve months to June 30, 2026.
- British American Tobacco’s free cash flow fell to £5.79 billion in fiscal 2025 from £9.64 billion in fiscal 2024, and it carries more debt, at 2.9x net debt to EBITDA against 2.0x for Philip Morris.
- British American Tobacco expects its leverage to reach its 2.0x-2.5x target range by the end of 2026, and its cash conversion to top 95% this year.
Philip Morris International (PM) raised its quarterly dividend 8.8% to $1.60 a share in September. By the company’s own count, that was its 19th raise in as many years.
Even after that raise, British American Tobacco (BTI) yields 5.6%, against 3.2% for Philip Morris. So income investors have to weigh the bigger check against a dividend with more room behind it and faster growth.
Which is the better dividend stock?
| Metric | Philip Morris (PM) | British American Tobacco (BTI) |
|---|---|---|
| Dividend yield | 3.2% | 5.6% |
| Dividend growth, fiscal 2020-2025 | 3.5% a year | 2.2% a year (in pounds) |
| Cash dividend payout ratio (TTM) | 68% (to Sept. 30, 2026) | 78% (to June 30, 2026) |
| Net debt / EBITDA (LTM) | 2.0x | 2.9x |
| Interest coverage (LTM) | 12.2x | 5.2x |
| Forward P/E (NTM) | 23x | 12x |
Source: TIKR, Nov. 9, 2026.
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Philip Morris has room to spare
Philip Morris’s business is growing. Net revenue rose 5.5% to $11.4 billion in the third quarter of 2026 from a year earlier, and smoke-free products like IQOS, ZYN and VEEV made up more than 40% of it.
Over the twelve months to Sept. 30, 2026, Philip Morris paid out $9.20 billion, or 68% of its $13.60 billion of free cash flow. Free cash flow has topped the dividend in every fiscal year since 2016 except fiscal 2023, when it came in at $7.88 billion against $7.96 billion paid out:
The risk is what Philip Morris is spending to grow ZYN. On Oct. 21, it trimmed its full-year adjusted EPS forecast to $8.29-$8.44 on a smaller boost from currency. Still, it expects around $13.5 billion of operating cash flow in 2026 and $1.4 billion to $1.6 billion of capital spending, which leaves plenty for the dividend.
$10,000 at 3.2% pays $320 a year today. The dividend grew 3.5% a year from fiscal 2020 to fiscal 2025, from $4.74 a share to $5.64. At that pace, the $10,000 would pay about $438 in year 10. Call it a 4.4% yield on your cash, with whatever the stock gains on top.
British American Tobacco’s bigger check has less cushion today
BAT’s dividend asks more of its cash flow, though that’s a recent change. BAT paid £5.32 billion in dividends over the twelve months to June 30, 2026, a manageable 78% of its £6.85 billion of free cash flow. From fiscal 2021 to fiscal 2024, it paid out a well-covered 50% to 55%. Then free cash flow fell to £5.79 billion in fiscal 2025, and the ratio jumped to a tight 91%:
Management expects the cash to keep coming. CFO Syed Iqbal said on BAT’s first-half call that he’s “very confident that for the full year, we will be delivering another year of more than 95% cash conversion.” At its Capital Markets Day on Sept. 29, BAT also stood by its goal of more than £50 billion of free cash flow from 2024 to 2030. Its US nicotine pouches and US cigarette sales are growing.
The risk is the debt. Leverage of 2.9x sits above the target range BAT expects to reach by year-end.
BAT sets its dividend in pounds: 61.26 pence a share for the quarter that went ex-dividend on Oct. 2. So the dollar amount US holders receive moves with the exchange rate. $10,000 at 5.6% pays $560 a year today. At its 2.2% five-year growth rate, figured in pounds, that’s about $683 in year 10, a 6.8% yield on the $10,000.
So which dividend wins?
British American Tobacco is the better dividend stock. It pays $560 a year on $10,000 today, against $320 from Philip Morris. At their five-year growth rates, Philip Morris’s income wouldn’t catch up for more than 30 years. And BAT’s 78% payout still leaves room.
Income buyers don’t pay much for that yield, either. BAT trades at 12x forward earnings, against 23x for Philip Morris. That’s below its five-year high of 14x but well above its 8.9x average:
That isn’t to say Philip Morris’s dividend is in any danger. It has more room today, less debt, faster dividend growth and a longer record of raises. But the income gap is just too wide to give up when BAT’s own dividend is well covered.
Of course, that pick leans on BAT’s cash flow recovering as management expects. If its full-year results miss the 95% cash-conversion target, or leverage is still above 2.5x at year-end, I’d give Philip Morris a much closer look.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
